Friday, December 5, 2008

Prime Minister Vladimir Putin promised Russians economic prosperity and the prospect of warmer relations with the U.S. in a live three-hour question-and-answer session Thursday that showcased him as Russia's most powerful leader.

The nationally broadcasted call-in show was the seventh for Putin. Current Russian President Mikhail Medvedev has kept a lower profile and has not held such call-in show.

It was an interesting three hours as the Prime Minister showed his countries teeth to Russia's foes, while making every effort to sound paternal and kind to the home audience. He promised apartments to military officers, support to the unemployed, free medicines to retirees and higher wages to all Russians. Putin pledged that the government would be able to prevent a drop in living standards and implement earlier plans for salary and pension increases. He said the Russian economy was expected to post almost 7 percent growth this year despite the crisis, and promised that wages and pensions will rise by 12 percent.

"We have every opportunity to get through this difficult period with minimal problems."

Putin said Russia's currency reserves, the world's third-largest, would be sufficient to cushion the effects of the financial crisis.

Prime Minister Putin also spoke about the ruble. He said Russia will avoid “sharp” swings in the ruble by using its $454.9 billion of reserves to support the currency. The nation’s cash pool rose last week for the first time in two months, the central bank said yesterday.

We will most likely see more gradual devaluations of around 1 percent at a time, and we could see the ruble 15 percent weaker against the basket in six months and 20 percent weaker in 12 months.

Prime Minister Putin wrapped up the carefully choreographed session by taking a long string of questions sent in advance, ending with one asking what he loves most. His answer was simply "Russia."

Russia weakened its defense of the ruble for a fourth time in a month, pushing the currency near a three-year low against the dollar, as the price of the nation’s crude oil fell by a record this week to less than $40 a barrel.

Russia has already raised interest rates twice last month and drained $143 billion from its foreign-currency reserves to arrest a 17 percent drop in the ruble since August as oil had plunged in value. Urals crude, Russia’s main export blend, slumped 20 percent this week to $39.82 a barrel, below the $70 average needed to balance Russia’s 2009 budget.

Russia is the world’s largest energy producer and the worldwide recession is cutting the value of commodities around the world.

Russia is facing its worst financial crisis since the government defaulted on $40 billion of debt a decade ago, prompting a 71 percent ruble devaluation against the dollar that eroded bank deposits.

In an interview with Bloomberg News, Nouriel Roubini said he sees oil prices falling a further 20%, which will hurt the Russian economy.

In his interview from Moscow, Nouriel Roubini said, "With most commodity currencies, like in Canada, Australia, when the price of commodities falls, the currency automatically weakens.” His suggestion is that the Ruble should be 10-20% weaker as oil prices drop.

In the interview he said Bank Rossii, Russia’s central bank, should stop selling foreign currency to support the ruble.